Booming deficits and the need to finance banking bailouts worth billions of pounds have turned sovereign bonds into the new junk debt market.

Investors are now paying about $88,000 (£55,000) to insure $1m worth of debt issued by a basket of sovereign countries – or 88 basis points – more than the $83,000 paid to insure $1m of corporate debt, according to credit data provider, Markit.

The growing problems of the Greek economy this week have made the cost of its protection against default rally to more than 400 basis points.

"Much will depend on the EU's commitment to bailing Greece out," said Gavan Nolan, an analyst at Markit. "The markets are looking for the EU to show support to Greece, they're looking for a firm commitment and they haven't received that yet."

Britain must curb public spending to keep its top AAA-credit rating as protection costs rise to 80 basis points, twice the level paid for France and Germany, says Markit.